ESOP Unplugged

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ESOP Unplugged

  1. 1. An ESOP is used primarily as  talent retention tool  incentive  or remuneration apart from the larger vision of sharing of wealth. Earlier to the Companies Act 2103 (“Act”), private limited companies and unlisted public limited companies had freedom and flexibility to structure ESOP for their employees. The Act now has become prescriptive and has Rules on eligibility of employees/promoters, cliff, accelerated vesting and the like. While the changes made in the Act are prospective, even so, if your company had ESOP earlier and there are modifications to be made to the Plan, then please be very careful. ESOP: Unplugged
  2. 2. ELIGIBILITY FOR ESOP? ARE THERE ANY DISQUALIFICATIONS FOR ESOP? DOES ESOP GETS COVERED UNDER PRIVATE PLACEMENT? IS BUYBACK OF ESOP POSSIBLE? HOW IS ESOP SCHEME PUT IN PLACE? WHERE ALL ESOP DISCLOSURES ARE REQUIRED? Every Director of the Company Permanent employee of the Company Board Approval Employee of a Subsidiary, Holding or an Associate Company Every Employee Any Promoter Director (founders) A director, who, directly or indirectly, holds more than 10% share-holding No Section 42 specifically excludes ESOP Yes Permanent employee, who is a promoter or belongs to Promoter Group Shareholders’ approval through special resolution Determination of exercise price by Registered Valuer at the time of exercise
  3. 3. CAN TERMS OF ESOP SCHEME BE VARIED? IS TIME PERIOD PRESCRIBED BETWEEN GRANTING OF OPTIONS AND VESTING OF OPTIONS? WHAT ARE THE SHAREHOLDER RIGHTS OF EMPLOYEES? CAN THE COMPANY DECIDE LOCK IN PERIOD? IS THE OPTION TRANSFERABLE? Directors Report Only if it’s not prejudicial to the interests of option holders through shareholders’ approval Minimum time lapse between granting and vesting is 1 year Company has the freedom to fix lock in period. No minimum or maximum period prescribed for lock in. Can’t enjoy any shareholder’s benefits, until the shares are issued on exercise of option (and allotment of shares). No Explanatory Statement supported by a valuation certificate Financial Statements

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